Latest / Talking FACS / Preparing for Retirement

Transcript

Preparing for Retirement · Talking FACS

• 0:01
  Welcome to Talking Facts.
• 0:03
  What you need to know about family food finance and fitness.
• 0:07
  This nationally recognized award winning podcast is hosted by the University of Kentucky Family and Consumer Sciences Extension Program.
• 0:16
  Our educators share research knowledge with individuals,
• 0:19
  families and communities to improve quality of life.
• 0:24
  Hello and welcome to Talking Facts.
• 0:26
  What you need to know about family food finance and fitness.
• 0:30
  I am your host,
• 0:31
  Mindy mcculley,
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  Family and Consumer Sciences Extension Specialist for instructional support at the University of Kentucky.
• 0:38
  Today.
• 0:38
  My guest is Doctor Nicole Huff who is our assistant extension professor for family finance and resource management.
• 0:46
  Welcome Nicole.
• 0:47
  Hi,
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  Mindy.
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  We are going to talk about getting ready for retirement and I'm a whole lot closer to that than you are.
• 0:54
  Well,
• 0:55
  but this is gonna be a good topic for me to learn today before we get started.
• 1:00
  Let's just think about retirement and,
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  and realize that not only just because I'm close to,
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  it doesn't mean that I'm the only person who needs to think about it because even somebody who is just starting their career needs to think about retirement,
• 1:12
  don't they?
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  So when should someone start saving for retirement.
• 1:17
  Yeah.
• 1:17
  No,
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  absolutely.
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  You're correct.
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  Mindy,
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  start at the beginning of your career.
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  And that is so hard because I know,
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  I wish this was a case where I,
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  um,
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  could say I followed all these tips when I was in my early twenties and even my early thirties.
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  And it's really hard.
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  I think it's hard when you feel like you don't have much to invest to prioritize saving for retirement.
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  But then you realize the older you get man,
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  I wish I would have started saving sooner.
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  So,
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  um the short answer is as early as possible is when someone should start saving for retirement,
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  you know,
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  a reason for that is um and this is something that uh you know,
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  anybody should think of,
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  but especially as you are,
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  you see that retirement on the horizon is that the IRS estimates you may need up to 80% of your current income to retire comfortably and with inflation and everything else,
• 2:22
  the cost of living very high.
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  Um it takes quite a because life spans are longer than ever before.
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  And so the average American is living to,
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  to nearly 80 years old is the average life span or older.
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  And so a person could spend 20 to 30 years or more in retirement.
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  And so it's gonna take quite a nest egg if you want to do that.
• 2:45
  Oh,
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  yes,
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  definitely.
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  And I uh when my Children started their work life,
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  I told them if you right now,
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  saving for retirement,
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  whatever you put away,
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  you're not gonna miss as opposed to waiting a little,
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  a little bit further down the road.
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  And so they followed my advice and I hope they continue to follow that advice so that they continue to reap the benefits of compounding interest and time value of money.
• 3:09
  Right.
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  Well,
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  you speak on that and,
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  and so with compounding interest a little bit really does add up over time.
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  And so that's what is important to,
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  you know,
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  to remember.
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  And so if you,
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  um,
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  you know,
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  invest,
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  let's say $500 in 20 years with compounding interest,
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  that could be over $230,000.
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  And so that's a lot of money.
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  And so,
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  uh,
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  the longer you start,
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  the more you,
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  you,
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  the,
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  the longer your money has to grow.
• 3:41
  Exactly.
• 3:42
  Exactly.
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  So,
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  what about Social security benefits?
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  If I,
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  you know,
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  if I'm gonna be putting into Social security,
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  do I really need to be saving in addition to that too?
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  Oh,
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  yes.
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  Uh,
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  yes.
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  And so,
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  you know,
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  we cannot expect government benefits and,
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  and,
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  and Social Security benefits to finance our retirement.
• 4:03
  Um,
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  the average monthly benefit paid by the Social Security administration is around $1200.
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  And so,
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  you know,
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  that won't likely,
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  you know,
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  match that 80% of what most people are accustomed to living on.
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  And so,
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  you know,
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  to think about social Security benefits it's really in conjunction with a larger retirement plan.
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  And so,
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  you know,
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  I recommend getting on to the Social Security Administration's website.
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  Um You can log in to your account and if you don't have one,
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  you can create one and that'll be in our show notes and in the money wise that's attached to this podcast,
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  but it will help you calculate what your different social security retirement uh benefits would be at different ages.
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  And so you can plug in 62 65 67 70 some of those popular ages,
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  um,
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  for,
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  uh,
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  beginning to draw social security benefits.
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  And so you want to weigh that decision very carefully because the amount you'll draw will vary depending on age.
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  And,
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  um,
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  there's no one size fits all.
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  And so,
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  you know,
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  everybody's lifestyle,
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  finances,
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  personal needs,
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  the retirement goals will be different.
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  And so you can kind of see what your retirement benefits from Social security would be depending on what you've contributed and what age that you withdraw.
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  But you don't wanna,
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  you don't wanna plan on that being your retirement,
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  your retirement plan or you won't go very far?
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  That that is exactly right.
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  So what are some of those common types of retirement,
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  um,
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  accounts that people might contribute to above and beyond social security?
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  You,
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  you probably heard of the Ira,
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  so the individual retirement accounts or individual retirement arrangements,
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  um,
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  and so three really common ones are your traditional Ira your Roth Ira and then your traditional 401k and I,
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  I'll talk just a little bit about each of those,
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  you know,
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  the traditional Ira that is an individual retirement account and it allows you to make pretax contributions.
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  And so what that means is you don't pay taxes on what you deposit into that savings account or what you earn on that compound interest.
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  You don't pay taxes on that until retirement.
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  So then in retirement,
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  when you withdraw that money,
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  that your withdrawals are taxed as income,
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  and so this can be beneficial.
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  A traditional Ira can be beneficial if you expect to be in a lower tax bracket when you retire.
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  The second common account is the Roth Ira.
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  And so that is different than a traditional in that it,
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  your contributions are made with funds that have already been taxed.
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  And so you are taxed on those before you contribute,
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  which means that those withdrawals that you make during retirement are not taxed again.
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  So they,
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  you withdraw tax free.
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  Um And then the third is,
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  is what many listeners may be most familiar with is your traditional 401k and that's your employer sponsored retirement plan.
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  And that allows employees to make a pretax contribution uh through payroll deductions.
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  And so oftentimes your money will go straight from your paycheck into your account,
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  which is what we recommend,
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  like you were saying,
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  you don't miss that money then,
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  right?
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  And then most 401k plans offer employees a check choice of investment options.
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  And so sometimes you can choose,
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  you can personally choose how to invest that money or you can let an advisor choose how to um to,
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  to make those investments for you and how to diversify your funds.
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  And then the good thing about 401k s is that many times employers will match contributions.
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  And if they do,
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  it is very important that you take full advantage of an employer matching because that's gonna maximize your savings.
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  If you don't,
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  you're leaving money on the table.
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  And then uh those are also um tax deferred.
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  So that means you only pay when you withdraw the savings in retirement.
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  So if your employer doesn't provide a retirement plan,
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  then you want to take advantage of one of those Ira s but could you also take advantage of an IRA if your,
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  if your employer did provide,
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  could you put additional money in you can?
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  And so you want to,
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  again,
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  everybody's financial situation is going to be different.
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  And so one of the things to keep in mind is start when you,
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  when you start planning,
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  start,
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  if you have retirement benefits offered through your employer,
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  start talking to that most of the time,
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  there will be some kind of investment representative who can and talk to you about your options through your employer.
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  But then um if you,
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  especially if you didn't start saving until later in life and you are trying to save more aggressively talk to a financial advisor about how much you can invest.
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  What are the caps based on your age?
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  And um and you definitely wanna walk with that process with some who an advisor,
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  who knows um your financial situation and your age and your circum certain life circumstances and who can help advise you on another type of plan like the Ira traditional or the Roth Ira or other investment options that can help you especially catch up on some lost time.
• 9:30
  Sounds like a great plan.
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  So when can you start with drawing money that you have saved in your retirement accounts?
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  Again,
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  it might sound like a broken record,
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  but it's gonna depend based on your situation.
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  It's gonna depend based on the plan and the circumstances you,
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  you,
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  you have.
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  And um it can range from age 55 to 59 a half to 72 or,
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  or,
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  or any um age in between.
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  And so again,
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  you really want to talk to a licensed financial advisor at your um financial institution,
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  your bank,
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  your credit union at a licensed brokerage company and really talk through your finances and your retirement goals and,
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  and they can help you crunch those numbers so that you can see if there are penalties that are associated or fees that are associated with um early withdrawals.
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  And then there's also you have to think about required withdrawals and they're called uh R M DS or required minimum distribution.
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  So at some point,
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  usually 70.5 or 72 depending on your birth year.
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  But at some point,
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  you have to start making minimum withdrawals.
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  So if you are still working and you are not retired,
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  but you have been contributing to a traditional Ira or a 401k plan,
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  most will require you to begin making those um withdrawals or those required minimum distributions.
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  And so there is a link in our show notes uh in,
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  in the money wise newsletter where you can go and see what that age is for you,
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  depending on your birth year.
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  And then that can also help you kind of plan as you,
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  as you look towards.
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  Uh what is that ideal age for you and your finances and how it,
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  it may change.
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  So once you have decided that you're ready to retire,
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  do you just go and pull all your money out or should you come up with a good plan for distributing your money across the lifespan of your retirement?
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  That is the thing is that when you're ready to retire,
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  you have to make that retirement fund last.
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  And so if you are one of those um lucky individuals who is just blessed with a long retirement and a long life and you have to fund um your,
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  your uh self or your family needs for 20 or 30 years after you stop,
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  um,
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  you know,
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  formally working,
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  then you want to make sure that you have a good plan in place and that you are still continuing to budget and continuing to um invest and to make your money work for you.
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  And so as you plan ahead,
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  you know,
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  take charge of your financial future and use the resources and advisors that are available to you.
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  And so you,
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  you know,
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  if you don't know where to start,
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  start with your place of employment or start with your financial institution.
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  So your bank or credit union start there and then or get the uh trusted referrals from um from friends or family members who have worked with a financial advisor.
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  If they um recommend them,
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  always be sure to vet anyone that you work with,
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  to make sure that they are qualified to uh to handle your money because you want to make sure that somebody is.
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  Um and then there are a lot of free tools available online,
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  you know,
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  through different government websites that will help you establish those financial goals to create a cash flow plan to reduce debt.
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  That's something we we hadn't talked about but want to consider your um debt to income ratio when you go to retire and make sure that you,
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  you have really paid down your debt.
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  So that that is not taking your retirement income.
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  And then just to help you create a savings plan and,
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  and so check out this month's money wise,
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  um and that will help you learn some tools that you can use online that are free to you to help you establish some savings goals for retirement.
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  I know that when I get to the retirement portion of my life,
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  if I decide that I'm bored and I want to go back to work,
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  I want that to be a decision that I choose to make and not one that I have to make because I have not planned well.
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  So that's a good,
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  good closing point,
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  Mindy Nicole,
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  thanks for being with us today and giving us all this great advice um to think about as we are looking towards the future as we age gracefully.
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  Yes,
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  let's hope so.
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  And to our listeners,
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  if you are just tuning in,
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• 14:00
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